Tom Hayes Oxford City Councillor for St. Clement's Ward and Cabinet Member for Green Transport and Zero Carbon Oxford 24th November 2016 Blog Economy Share Tweet This week was a bad week for the political left in our country. In a speech to the CBI, the PM made a clear promise to cut corporate tax below the 15% pledged by Donald Trump then watered down a clear promise to put workers on to company boards. Following the Autumn Statement, corporation tax will fall to 17% at the least, down from 28% since 2010. Let’s be clear. All cuts to corporation tax and failures to reform corporate governance will systematically and disproportionately benefit those with great wealth and do nothing to make the majority more financially secure and richer. With trust in business running at 35% among those in lower income brackets, the imperative for reorganising the economy to widely share prosperity and security could not be stronger. The rules of the market benefit the corporation, which channels more and more profits to shareholders and executives. Last year bosses of Britain’s largest public companies enjoyed a 10% pay rise, often receiving 129 times more than their employees. Worker pay in the economy lags far behind, causing the majority to feel they are being exploited. The myth that we should celebrate the wealth of those at the top because we all benefit from it is being constantly challenged. The Government needs to double-down on their promise to give workers a say in the running of companies if they want to control executive pay. The PM needs to go further than her commitments and ensure profits benefit those delivering them—incentives for long-term shareholding, profit-sharing, and wage increases matter. We co-operators have been calling for these as part of a shared economy. Mrs May could also explore radical incentives to peg corporate tax rates to CEO-to-worker pay ratios. Recently California Democrats supported a measure to reward firms that reduced their ratios and punish others that increased them. If a business leader made 200 times more than a worker, that firm’s corporate tax rate would rise by 1%. The measure did not win the majority needed to become law, but it stands as a unique incentive for reinventing the corporation in ways that reduce inequality. The Government could do more to stave off a global race to the bottom. Business tax has been based on a fiction – the notion that tax authorities know what profits multinationals make and what taxes they pay in the countries where they operate. Firms manipulate the location of their profits to wherever they could be taxed little or not at all, all to avoid tens of billions in taxes. Offshore tax havens are the worst expression of this corporate tax race to the bottom. But, there’s a chance for MPs to act. The global cost of offshore tax evasion is significant and growing – globally around 8% of households’ wealth is held in tax havens. Taxes that are evaded have to be compensated for, usually via public spending cuts or higher taxes on those least responsible. One estimate puts the cost to government coffers at $190 billion a year. Thanks to the leadership of Caroline Flint, the Government backed an amendment to a bill which brings the UK closer to forcing multinationals with significant activities here to publicly say where they make profits and what taxes they pay. But, we still have lots to do to boost corporate responsibility through increased tax transparency. Governments aren’t just cutting their business tax rates to stay attractive to mobile multinationals. They’re cutting taxes to stop the fleeing of capital to tax havens. But, governments end up taking a double hit – they bring in less tax on assets that aren’t hidden away then take a hit on the concentration of wealth offshore. We need to reform corporate taxation, so that multinationals open their books and pay what they owe. As the Panama Papers show, the UK’s overseas territories and crown dependencies sit at the centre of the world’s tax haven network. As of last week, every overseas territory backs central registries that are accessible to enforcement authorities. But, we need public registers to make clear who owns all companies, know what assets are held offshore, and ensure everyone pays the right amount of tax rather than moving money around secretly to avoid taxes. MPs led by Margaret Hodge are calling for a bill passing through Parliament—the Criminal Finances Bill—to require overseas territories and crown dependencies to bring in public registers of beneficial ownership. A tax haven has a financial incentive to keep attracting tax dodgers. No tax haven is going to abandon secrecy without pressure, and MPs should apply that pressure with our support. Inequality is neither inevitable nor irreversible. We co-operators have the power to change course and rewrite the rules. Together, we can grow the economy, broaden the gains from growth, and expand opportunity for all. Tom Hayes is an Oxford City Councillor and Midcounties Co-operative Party member